E.pA/300'/F-95/-006
UNITED STATES ENVIRONMENTAL.PROTECT10N AGENCY
''.;' WASHINGTON, D.C. 20460
MAY -31995
'..;,-, . - " -. : OFFICEOF
--.. .' ENFORCEMENT AND
-,',,, ' ' ' % ' '-'- --COMPLIANCE ASSURANCE
MEMORANDUM" . , . ,
SUBJECT; Issuance of Interirn Re/Bed "Supplemental' Environmental Projects Policy
-FROM: Steven A:
.'Assistant!Administrator
TO: Regional Administrators ' ' . .-..
. Attached is EPA's Interim Revised Supplemental Environmental Projects .(SEP)
Policy SEPs are environmentally'beneficial projects which a violator agrees to undertake in
settlement of an enforcement action, but which the violator is not otherwise egally required
to perform. This interim revised Policy provides the Agency -with additional flexibility to
craft settlements which may secure significant environmental or public health protection.
The Agency encourages the use of SEPs. While penalties play an important: role in
environmental protection by deterring violations and creating a level playing field, SEPs^can
play an additional role in securing significant environmental or public health protection and
improvements. SEPs may be particularly appropriate to further the. objectives m the statutes .
EPA administers and to, achieve other policy rgoals, including promoting pollution prevention
and environmental justice. .
,''*-" " . ' *»
This revision provides numerous improvements to the current SEP Policy. The -.,
revised Policy, clearly defines a SEP. It establishes guidelines to ensure that SEPs are_within
EPA's legal authority. It defines seven categories of projects which may .qualify as SEPs It
provides step-by-step procedures for calculating the cost of a SEP and the percentage of that
cost, based,on an evaluation of five factors, which may be applied as a mitigating factor in
establishing an appropriate settlement penalty. :
This Policy is effective May 8, 1995 and supersedes the February 12, 1.991. "Policy
:onthe Use of Supplemental Environmental Projects in EPA Settlements.* The Policy is to
be used in all enforcement actions filed after the-effective date and to al Bending cases in
which the government has not reached agreement in principle with the alleged violator on the
specific terms of a SEP.
Recycled/Recyclable .
Ptnt«d «ai Soy/Cano'i Ink on paper that
contains «laasi 75% recycled lio«r
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We are issuing this Policy in an interim version because we may wish to revise it
based on public commenb and our experience in using it. We are issuing it as an interim
policy, rather than as a draft, because we believe-it is superior to the 1991 Policy and thus
should go into effect as soon as possible. We expect to publish this interim version of the
Policy in the Federal Register within the next 30 days.
Thank you for your comments on two previous internal drafts of this Policy. We
appreciate .the support and.efforts of the Department of Justice, our Office of General
Counsel, and the SEP workgroup in revising this Policy.
We expect to conduct training sessions on the new Policy in each Region during the
next few months. In addition, we expect to issue guidance on the proper drafting of
settlement agreements containing SEPs shortly. If you have any-questions on the. Policy, you
may contact David A. Hindiri. Acting Branch Chief, Multimedia Enforcement Division, in .
the Office of Regulatory Enforcement at 202-564-6004. -Questions also may be directed to
Peter Moore, at 202-564-6014. or Gerard Kraus at 202-564-6047-in the Multimedia
Enforcement Division. . .',-.'
Attachment , ...'-''
cc: (w/attachment) . "
Assistant Administrators
OECA Office Directors
ORE Division Directors ..
Regional Counsels .
Regional Enforcement Coordinators,
Regional Program Division-Directors
Department of Justice, AAG, ENRD ...'.;.'
Department of Justice, EES Chief and Deputy Chiefs
Department of Justice, EDS Chief and Deputy Chief
SEP Workgroup Members
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INTERIM REVISED
EPA SUPPLEMENTAL ENVIRONMENTAL PROJECTS POLICY
EFFECTIVE MAY 8, 1995
A. INTRODUCTION
1. Background
In settlements of environmental enforcement cases, the U.S, Environmental Protection
Agency (EPA) will require the alleged violators to achieve'and maintain compliance with
Federal environmental-laws:and regulations and to pay^a civil penalty. To further EPA's"
goals to protect and enhance public health and the environment, in certain instances ..... . ,
environmentally beneficial projects, or Supplemental Environmental Projects (SEPs), may be
included in the settlement. This Policy sets forth the types of projects that are permissible as
SEPs-, the penalty mitigation appropriate for a particular SEP, and the terms and conditions
under which they may become part of a settlement. The primary purpose of this Policy is to
encourage and obtain environmental and public health protection and improvements that may
not otherwise have occurred without the settlement incentives provided by this;Policy.
In settling enforcement actions, EPA requires alleged violators to promptly cease the
violations and, to the extent feasible, 'remediate any harm caused by the violations. EPA also
seeks substantial monetary penalties in order to deter noncompliance. Without penalties,
companies would have an incentive to delay compliance until they are caught and ordered to
comply. Penalties promote environmental compliance and help protect public health by
deterring future violations by the same violator and deterring violations by other members of
the regulated community. Penalties help ensure a national level playing field by ensuring
that violators do not obtain an unfair economic advantage over their competitors who made
the necessary expenditures to comply on time. Penalties also encourage companies to adopt
pollution prevention and recycling techniques, so that they minimize their pollutant
discharges and reduce their potential liabilities.
Statutes administered by EPA generally contain penalty assessment criteria that a
court or administrative law judge must consider in determining an appropriate penalty at trial
or a hearing. In the settlement context, EPA generally follows these criteria in exercising its
discretion to establish an appropriate settlement penalty. In establishing an appropriate : .
penalty, EPA considers such factors as the economic benefit associated with the violations,
the -gravity or seriousness of the violations, and prior history of violations. Evidence of a
violator's commitment and ability to perform a SEP is also a relevant factor for EPA to
consider in establishing an appropriate settlement penalty. All else being equal, the final
settlement penalty will be lower for a violator who agrees to perform an acceptable SEP
compared to the violator who does not agree to perform a SEP.
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The Agency encourages the use of SEPs. While penalties play an important role in
environmental protection by deterring,violations and creating a level playing field, SEPs can
play an additional role in securing significant environmental or public health protection arid
improvements.1 SEPs may not be appropriate in settlement of all cases, but they are an
important part of EPA's enforcement program. SEPs may be particularly appropriate to
further the objectives in the statutes EPA administers and to achieve other policy goals,
including promoting pollution prevention and environmental justice.
2. Pollution Prevention and Environmental Justice
The Pollution Prevention Act of 1990-(42 U.S.C. § 13101 et seq., November 5,
1990) identifies an environmental management hierarchy in which pollution "should be
prevented or reduced whenever feasible; pollution that cannot be prevented should be
recycled in an environmentally safe manner whenever, feasible; pollution that cannot be
prevented or recycled should be treated'in an environmentally safe manner whenever
feasible; and disposal or other release into the environment should be employed only as a last
resort ..'." (42 U.S.C. §13103). In short, preventing pollution before it is created is
preferable to trying to manage, treat or dispose of it after it is created.
" Selection and evaluation of proposed SEPs should be conducted in accordance with
this hierarchy of environmental management, i.e., SEPs involving pollution prevention
techniques are preferred over other types of reduction or control strategies, and this can be
reflected in the degree-of consideration accorded to a defendant/respondent before calculation
of the final monetary penalty.
Further, there is an acknowledged concern, expressed in Executive Order 12898 on
environmental justice, that certain segments of the nations population are disproportionately
burdened by pollutant exposure. Emphasizing SEPs in communities where environmental
justice issues are present helps ensure that persons who spend significant portions of their
time in areas, or depend on food and water sources located near, where the violations occur.
would be protected. Because environmental justice is not a specific technique or process but
an overarching goal, it is not listed as a category of SEP; but EPA encourages SEPs in
communities- where environmental justice may be an issue.
3. Using this Policy ' .
In evaluating a proposed project to determine if it qualifies as a SEP and then
determining how much penalty mitigation is appropriate, Agency enforcement and
.compliance personnel should use the following, five-step process:
(1) Ensure that the project meets the basic definition of a SEP. (Section B)
(2) Ensure that all legal, guidelines, including nexus, are satisfied. (Section C)
Depending on circumstances and cost, SEPs also may have a deterrent impact.
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Revised SEP Policy * * * May 1995 * Page 3
(3) Ensure that the project fits within one (or more) of the designated categories of SEPs.
(Section'D) ' :> :-;' . , . "'. . '
(4) Calculate the net-present after-tax cost of the project and then determine the
appropriate amount of penalty mitigation. (Section E) , -
(5) Ensure that the project satisfies all of the implementation and other criteria.
(Sections F, G, H and I) . . ' .
4., Applicability
This Policy revises and hereby supersedes the February 12, 1991 Policy on the Use of
'Supplemental Environmental Projects in EPA Settlements. This-Policy applies to settlements
of all civil judicial and administrative actions filed after the effective date of this Policy and
to all pending cases in which the government has not reached agreement in principle with the
alleged violator on the specific terms of a SEP. -
This Policy applies to all civil judicial and administrative enforcement .actions taken
under the authority of the environmental statutes and regulations that EPA administers.- It
also may be used by EPA and the Department of Justice in reviewing proposed SEPs in
settlement of citizen suits. This, Policy also applies to federal agencies that are liable for the
' payment of civil penalties. This Policy does not apply to settlements of claims for stipulated
penalties for violations of consent decrees or other settlement agreement requirements.
This is a settlement Policy and thus is not intended for use by, EPA, defendants,
respondents, courts or administrative law judges at a hearing or .in a trial. Further, whether
the Agency decides to accept a proposed SEP as part of a settlement is purely within EPA s
discretion. Even though a project appears to satisfy all of the provisions of this Policy, EPA
may decide for one or more reasons, that a SEP is not appropriate (e.g., the cost of
-reviewing a SEP proposal is excessive,-the oversight costs of the SEP may be too high or -
the defendant/respondent may not have the ability or reliability to complete the proposed
- SEP). ';..' ' .. ., .'/.. ';''..,'.-'
This Policy establishes a framework for EPA to use in exercising, its enforcement
discretion in determining appropriate settlements. In some cases, application of this Policy
may not be appropriate, in whole or part. In such cases, the litigation team may, with the
advance approval of Headquarters, use an alternative or modified approach.
B. DEFINITION AND KEY CHARACTERISTICS OF A SEP
Supplemental environmental projects are defined, as environmentally beneficial
projects which a defendant/respondent agrees to undertake in settlement'of an enforcement
- The Agency is evaluating whether SEPs should be used, and if so, how, in evaluating claims
for stipulated penalties. . .
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Revised SEP- Policy *** May 1995 *** Page 4
action, but which the defendant/respondent is not otherwise .legally required to perform.
The three bolded key parts -of this definition are elaborated below.
"Environmentally beneficial" means a SEP must improve, protect, or reduce risks to-
public health, or the environment at large. While in some cases a.SEP may provide the
alleged violator with certain benefits, there must be no doubt that the project primarily
benefits the public health or the environment. ..
"In settlement of an enforcement action" means: 1) EPA has the opportunity to help
shape the scope of the project-before it is implemented; and 2) the project is not commenced
until after the Agency has identified a violation (e.g., issued a notice of violation,
administrative order, or complaint).'
' "Not otherwise legally required to. perform means" the SEP is not required by any
" federal state or local law or regulation. Further, SEPs cannot include actions which the .
.
may be required to perform: as injunctive relief m .
SEPs
part of a settlement or order in another legal action; or by state or oca
may include activities which the defendant/respondent will become legally obligated to .
umterrte two or more years in the future. Such "accelerated compliance" projects are not
allowaWe, however, if the. regulation or statute provides a benefit (e.g., a higher emission
limit) to the defendant/respondent for early compliance.
Also the performance of a SEP reduces neither the stringency nor timeliness _
requirements of Federal environmental statutes and regulations. Of course Performance of ^a
SEP does not alter the defendant/respondent's obligation to remedy a violation expeditiously
and return to compliance.
C. LEGAL GUIDELINES
EPA has broad discretion to settle cases, including the discretion to include SEPs as
an appropriate part of the settlement. The legal evaluation of wither a proposed SEP is
wiS-EPA's authority and consistent with all statutory and Constitutional requirements may
be a complex task. Accordingly, this Policy uses five legal guidelines to ensure that our
3 Since the primary purpose of this Policy is to obtain environmental or public health benefits
lhat may not havPe ocJrrSl "but for" the settlement, projects which have b*n started befont tte _
= Agency has identified a violation are not eligible as SEPsi Projects wh.ch have been commmed to or
before the identification of a violation may mitigate the penalty in other ways. Depending on
company had initiated environmentally beneficial projects before the enforcement
the initial penalty calculation could be lower due to the absence of recalcitrance,
^iSLioos. good faith efforts, less severity of the violations, or a shorter.duration
of the violations. . .
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Revised SEP Policy *** May 1995 *** Page 5
SEPs are within the Agency's and a federal court's authority,'and do not run afoul of any
Constitutional or statutory requirements.4 .
1 All projects must have adequate nexus. Nexus is the relationship between the
violation and the proposed project. This relationship exists only if the project
remediates or reduces the probable overall environmental or public health impacts or
-risks to-which the violation at issue contributes, or if the project is designed to reduce
the likelihood that similar violations will occur in the future. SEPs are likely, to have
an adequate nexus if the primary, impact of the project is at the site where the alleged
violation occurred or at a different site in the same ecosystem or within the immediate
geographic5 area. Such SEPs may have sufficient nexus even if the SEP addresses a
different pollutant in a different medium. In limited cases, nexus may exist even
'-. though a project will involve activities outside of the United States.6 . '.
' ? A project must advance at least one of the declared objectives of the .
environmental statutes that are the basis of the enforcement, action. Further, a. project
cannot be inconsistent with any provision of the-underlying statutes.
3 EPA or any other federal agency may not play any role in managing or controlling
funds that may be set aside or escrowed for performance of a SEP. Nor may EPA
retain authority to manage or administer the SEP. EPA may, of course, provide
oversight to ensure that a project is implemented pursuant to the provisions of the
settlement and have legal recourse if the SEP is not adequately performed.
4 The type and scope of each project are determined in the signed settlement
agreement. This means the "what, where and when" of a project are determined by
the settlement agreement. Settlements in which the defendant/respondent agrees to
spend a certain sum of money on a.project(s) to-be determined later (after EPA or the
Department of Justice signs the settlement agreement) are generally not allowed.
5 A project may not be something that EPA itself is required by its statutes to do.
And a project may not provide EPA with additional resources to perform an activity.
for which Congress has specifically appropriated funds: In addition, a SEP should
not appear to be an expansion of an existing EPA program. For example, if EPA has
developed a brochure to help a segment of the: regulated community comply with
environmental requirements, a SEP may not directly, or indirectly, provide additional
resources to revise, copy or distribute the brochure.
V These legal guidelines are. based on federal law as it applies to EPA; States may have more or
/less flexibility in the use of SEPs depending on their laws,
5 The immediate geographic area-will generally be the area within a 50 mile radius of the site on
which the violations occurred. . / .
' All projects which would include activities outside the U.S. must be, approved in advance by
Headquarters and/or the Department of Justice. See section I.
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D. CATEGORIES OF SUPPLEMENTAL ENVIRONMENTAL PROJECTS
EPA has identified seven categories of projects which may qualify as SEPs. In order
for a proposed project to be accepted as a SEP, it must satisfy the requirements of at least
one category plus all the other requirements established in this Policy.
1.
Public Health
A public health project provides diagnostic, preventative and/or remedial components
of human health care which is related to the actual or potential damage to human health
caused by the violation. This may include epidemiological data collection and analysis,
medical examinations of potentially affected persons, collection and analysis of blood/fluid/
tissue samples, medical treatment and rehabilitation'therapy.
Public health SEPs are acceptable only where the primary benefit of the project is the
population that was harmed or put at risk by the violations. .
2. Pollution Prevention' . ' . ' .
A pollution prevention project is one which reduces the generation of pollution
through "source reduction," i.e., any practice which reduces the amount of any hazardous
substance, pollutant or contaminant entering any waste stream or otherwise being released
into the environment, prior to recycling, treatment or disposal. (After the pollutant or waste
stream has been generated, pollution prevention is no longer possible and the waste must be
handled by appropriate recycling, treatment, containment, or disposal methods.)
Source reduction may include equipment or technology modifications, process or
procedure modifications, reformulation or redesign of products, substitution of raw materials,
and improvements in housekeeping, maintenance, training, inventory control, or other
operation, and maintenance procedures. Pollution prevention also includes any project which
protects natural resources .through conservation or increased efficiency in the use of energy,
water or other materials. "In-process- recycling," wherein waste materials produced during a
manufacturing process are returned directly to production as raw materials on site, is
considered a pollution prevention project.
*
In all cases, for a. project to meet the definition of pollution prevention, there must be
an overall decrease in the amount and/or toxicity of pollution released to the environment,
not merely a transfer of. pollution among media. This decrease may be achieved directly or
through increased efficiency (conservation) in the use of energy, water or other materials.
This is consistent with the Pollution Prevention Act of 1990 and the Administrator's
"Pollution Prevention Policy Statement: New Directions for Environmental Protection,"
dated June 15, .1993. ...
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Revised SEP Policy *** May 1995 ***
3. . Pollution Reduction '-'. : ', , ; ,
If the pollutant or waste stream already has been generated or released, a pollution
reduction approach - which employs recycling, treatment, containment or disposa
techniques -- may be appropriate. A pollution reduction project is one which results in a
decrease in the amount and/or toxicity of any, hazardous substance, pollutant or contaminant
entering any waste stream or otherwise being released into the environment by an operating
business or facility by a means which does not qualify as "pollution prevention. This may.
include the installation of more effective end-of-process control or treatment technology.
This also includes "out-of-process recycling," wherein industrial waste collected after the
manufacturing process and/or consumer waste materials are used as raw materials for
production off-site, reducing the need for treatment, disposal, or consumption of energy or
. natural resources., . . .' ., '.'. '
4. ' Environmental Restoration and Protection . ., . ,
An'environmental restoration and protection project is one.which goes beyond
repairing the damage caused by the"violation to enhance the condition of the ecosystem or
immediate geographic area adversely affected.7 These projects may be used to restore or
protect natural environments (such as ecosystems) and man-made environments, such as
facilities and buildings. Also included is any project which protects the ecosystem from
actual or potential damage resulting from the violation or improves the overall condition of
the ecosystem. Examples of such projects include: reductions in discharges of pollutants
which are not the subject of the violation to an affected air basin or watershed; restoration of
a wetland along the same avian flyway in which the facility is'located; or purchase and
management of a watershed area by the defendant/respondent to protect a drinking water
supply where the violation, e.g., a reporting violation, did not directly damage the watershed
but potentially could lead to damage due to unreported discharges. This category also
includes projects which provide-for the protection of endangered species (e.g.^developing _
- conservation programs or protecting, habitat critical to the well-being of a species endangered
by the violation). . . .'-.-.'''-
With regards to man-made environments, such projects may involve the remediation
of facilities and buildings, provided such activities are not otherwise legally required^ This
includes the removal/mitigation of contaminated materials, such as soils, asbestos and leaded
paint, which are a continuing source of releases and/or threat to individuals.
..-:' '--'..'-' ' . i
5. Assessments and Audits
Assessments and audits, if they are not otherwise available as injunctive relief, are
potential SEPs under this category. There are four types of projects in this category:
I;pollution prevention assessments; b. site assessments; .c. environmental management.
system audits; and d. compliance audits.
If EPA lacks authority'to'require repair, then repair itself may constitute a SEP.
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Revised SEP Policy * * * . May 1995 * * * Page 8
a. Pollution prevention assessments are systematic, internal reviews of specific -
processes and opera-- ons designed to identify and provide information about opportunities to
reduce the use. production, and generation of toxic and hazardous materials and other
wastes. To be eligible for SEPs, such assessments must be conducted using a recognized
pollution prevention assessment or waste minimization procedure to reduce the likelihood of
future violations. .
b. Site assessments are investigations of the condition of the environment at a site or
of the environment impacted by a site, and/or investigations of threats to human health or the
environment relating to a site. These include but are not limited to: investigations of levels
and/or sources of contamination in any environmental media at a site; investigations of
discharges or emissions of pollutants at a site, whether from active operations or through
passive transport mechanisms; ecological surveys relating -o a site; natural resource damage
assessments; and risk assessments. To be eligible for SE. . such assessments must be
conducted in accordance with recognized protocols, if available, applicable to the type of
assessment to be undertaken. ' . ' -
c. An environmental management system audit is an independent evaluation of a
party's environmental policies, practices and controls. Such evaluation may encompass the
need for: (1) a formal corporate environmental compliance policy, and procedures for
implementation of that policy; (2) educational and training programs for employees; (3)
equipment purchase, operation and maintenance programs; (4) environmental compliance
officer programs; (5) budgeting and planning systems for environmental compliance; (6)
monitoring, record keeping and reporting systems; (7) in-plant and community emergency
plans: (8) internal communications and control systems: and (9) hazard identification, risk
assessment.
d. An environmental compliance audit is an independent evaluation of a
defendant/respondent's compliance status with environmental requirements. .Credit is only
given for the costs associated with conducting the audit. While the SEP should require all
violations discovered by'the audit to be promptly corrected, no credit is given for remedying
the violation since persons are required to achieve and maintain compliance with ;
environmental requirements. In general, compliance audits are acceptable as SEPs only
when the defendant/respondent is a small business8 9.
These two types of assessments and environmental management system audits are .
allowable as SEPs without an implementation commitment by the defendant/respondent.
8 For purposes of this Policy, a-small business is owned by a person or another entity that
employs 100 or fewer individuals. Small businesses could be individuals, privately held corporations,
farmers, landowners,-partnerships and others. .
9 Since most large companies routinely conduct compliance audits, to mitigate penalties for such
audits would reward violators for performing an activity that most companies already do. In
contrast, these audits are not commonly done by small businesses, perhaps because such audits may
be too expensive. " '
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Revised SEP Policy *** May 1995 *** Page 11
to determine what percentage of the net-present after-tax cost will" be considered in >
determining an appropriate final settlement penalty.
1: Penalty ' , / . "
> Penalties are an important part of any settlement. A .substantial penalty is generally
necessary for legal and policy reasons. Without penalties there would be. no deterrence as
regulated entities would have little incentive to comply. Penalties are, necessary as a matter
of fairness to those companies that make the necessary expenditures to comply on time:
violators should not be allowed to obtain an economic advantage over their competitors who
complied. Except in extraordinary circumstances, if a settlement includes a SEP, the penalty
should recover, at a minimum,the economic benefit of noncompliance plus 10 percent of the
gravity component, or 25 percent of the gravity component only, whichever is greater.
In cases involving government agencies or entities, such as municipalities, or non-
profit organizations, where 'the circumstances warrant, EPA may determine, based on the
nature of the SEPs being proposed, that an appropriate settlement could contain a cash
penal.ty -less than the economic benefit of non-compliance. The precise amount of the cash
penalty will be determined by the applicable penalty policy.
.2. Calculation of the Cost of the SEP .
To ensure that a-proposed SEP is consistent with this Policy, the net present after-tax
cost of the SEP, hereinafter called the "SEP Cost," is calculated. In order to facilitate
evaluation of the SEP Cost of a proposed SEP, the Agency has developed a computer model
called PROJECT. To use PROJECT, the Agency needs reliable estimates of the costs and
savings associated with a defendant/respondent's performance of a SEP. Often the. costs will
not be estimates but knpwn amounts-based on a defendant/respondent's agreement to expend
a fixed or otherwise known dollar amount on a project.
There are three types of costs that may be associated with performance of a SEP
(which are entered into the PROJECT model): capital costs (e.g., equipment, buildings);
one-time nondepreciable costs (e.g., removing contaminated materials, purchasing land,
developing a compliance promotion, seminar); and annual operation costs or savings (e.g.,
labor, chemicals;, water, power, raw materials).10 -
In or^to-run the PROJECT model properly (i.e., to produce a reasonable estimate
of the net present after-tax cost of the project), the number of years that annual operation
costs or savings will be expended in performing the SEP must be specified: At a minimum,
the defendant/respondent must be required to implement the project for the same number of
. 10 PROJECT does not evaluate the potential for market benefits which may accrue with the
performance of a SEP (e.g., increased sales of a product, improved corporate public image, or -
improved employee morale). Nor does it consider costs imposed on the government, such as the cost
tb the Agency for oversight of the SEP, or the burden of a lengthy negotiation with a defendant/
respondent who does not propose a SEP until lateJn the settlement process.
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Revised SEP Policy '*** May 1995 ***' Page 12
years used in the PROJECT model calculation. If certain costs'or savings appear
speculative they should not be entered into the PROJECT model. The PROJECT model is
the primary method to determine the SEP cost for purposes of negotiating settlements.
EPA does not offer tax advice on whether a company may deduct SEP expenditures
from its income taxes. If a defendant/respondent states that it will not deduct the cost of a
SEP from its taxes and it is willing to commit to this in the settlement document and prov.de
the Agency with certification upon completion of the SEP that it has not deducted the SEP
exoenditures 'the PROJECT model calculation should be adjusted to calculate the SEP Cost
wlLut reductions for taxes. This is a simple adjustment to the PROJECT model: just enter
a zero for variable 7, the marginal tax rate. If a business is not willing to make this
commitment, the marginal tax rate in variable 7 should not be set to zero; rather dip defeult
settings (or a more, precise estimate of the.business' marginal tax rates) should be used in
variable 7. . . ' .
If the PROJECT model reveals that a project has a negative cost, this means that it
represents a positive cash flow to the defendant/respondent and as.a.profitable.project thus,
generally is not acceptable as a SEP. If a project generates a profit, a defendant/respondent
should and probably will, based on its own economic interests, implement the project.
While EPA encourages companies to undertake environmentally beneficial projects that are
economically profitable, EPA does not believe violators should receive a bonus in the form
of penalty mitigation-to undertake such projects as part of an enforcement action EPA does
not offer subsidies to complying companies to undertake profitable environmentally beneficial
projects and it would thus be inequitable and perverse to provide such subsidies only to
violators In addition, the primary goal of SEPs is to secure a favorable environmental or
public health outcome which would not have occurred bjrtjor the enforcement case
settlement. To allow SEP penalty mitigation for profitable projects would thwart this
goal.12 . - .
3. Pp.naltv Mitipatfon .
After the SEP Cost has been calculated, EPA should determine what percentage of
that cost may be applied as mitigation agaiast the preliminary total calculated gravity
component before calculation of the final penalty. The SEP should be examinedas to
.whether and how effectively it achieves each of the following five factors listed below.
» See PROJECT User's Manual, .January 1995. If the PROJECT model appears inappropriate to
a particular fact situation, EPA Headquarters should be consulted to identify, an alternative approach.
For example, the December 1993 version of PROJECT does not readily calculate the cost_ of an
accelerated compliance SEP. The cost of such a SEP is the additional cost associated with doing the
project early (ahead of the regulatory'requirement) and it needs to be calculated in a slightly different
manner.
« The penalty mitigation guidelines in subsection E.3 provide that the amount of mitigation
should not exceed the net cost of the project. To provide penalty mitigation for profitable projects
would be providing a Credit in excess of net costs. '
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Revised SEP Policy * * * May 1995 *'**'- Page 13
Benefits to the PnHlir. or Environment at Large. While all SEPs benefit public health
or the environment, SEPs which' perform well Orf this factor will result In significant
and quantifiable reduction in discharges of pollutants to the environment and the
reduction in risk to the general public. SEPs also will perform well on this factor to
, the" extent they result in, significant and, to the extent possible, measurable progress in
protecting and restoring ecosystems (including wetlands and endangered species
habitats). ''''.'..-".'.. " . ' ,
Irinovativehess. SEPs which perform well on this factor will further .the development
and implementation of innovative processes, technologies,, or methods which more
effectively reduce the generation, release or disposal of pollutants; conserve natural
resources- restore and protect ecosystems; protect endangered species; or promote
compliance. This includes "technology forcing" -techniques which may establish new
. regulatory "benchmarks." ' \ .
Environmental Justice.' SEPs which perform well on this factor will mitigate damage
or reduce risk to minority or low income populations which may have been
disproportionately exposed to pollution or are at environmental risk.
Multimedia Impacts. . SEPs which perform well on this factor will reduce emissions to
more than one medium. . ; ,
Pollution Prevention. SEPs which perform well on this factor will develop and
implement pollution prevention techniques and practices.
The better the performance of the SEP. under each of these factors, the higher the
mitigation percentage may be set. As a general guideline, the final mitigation percentage
should not exceed 80 percent of the SEP Cost. For small businesses, government agencies -
or entities, and non-profit organizations, thisr percentage may be set as high as 100 percent.
For any defendant/respondent, ifone of the five factors is pollution prevention, the
percentage may be set as high as 100 percent. A lower^mitigation percentage may be .
appropriate-if the government must allocate significant resources to monitoring and reviewing
the implementation of a project.
t ' ""..- . ' . # "
In admiB&trative enforcement actions in which there is a statutory limit on
administrative-oenatoes, the cash penalty obtained plus the amount of penalty mitigation
credit dueit»$|gS£lfe shall not exceed the statutory administrative penalty limit,
F. PERFORMANCE BY A THIRD PARTY
SEPs are generally performed either by the defendant/respondent itself (using its own
employees) and/or by contractors or consultants.1? In the past in a few cases, a SEP has
13 Of course, non-profit organizations; such as universities and public interest groups, may
function as contractors or consultants. . - ,
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Revised SEP Policy * * * May 1995 * * * Page 14
been performed by someone else, commonly called a third party.' Because of legal concerns
and the difficulty of ensuring that a third party implements the project as required-(sinee by
definition a third party has no legal or contractual obligation to implement the project as'
specified in the settlement document), performance of a SEP by a third party is not allowed.
G. OVERSIGHT AND DRAFTING ENFORCEABLE SEPS
The settlement agreement should accurately and completely describe the SEP. (See
related legal guideline 4 in § C above.) It should describe,the specific actions to be
performed by the defendant/respondent and provide for a reliable and objective' means to
verify that the defendant/respondent has timely completed the project. This may require the
defendant/respondent to submit periodic reports to EPA. If an outside auditor is necessary to
conduct this' oversight, the defendant/respondent should be made responsible for the cost'of
any such activities. The defendant/respondent remains responsible for the quality and
timeliness of any actions performed or any reports prepared or submitted by. the auditor. A
final report certified by an appropriate corporate official, acceptable to EPA and evidencing
completion of the SEP, should be required.
To the extent feasible, defendant/respondents should be required to quantify the
benefits associated with the project and provide EPA with a report setting forth how the
benefits were measured or estimated. The defendant/respondent should agree that whenever
it publicizes a SEP or the results of the SEP. it will state in a prominent manner that the
project is being undertaken as part of the settlement of an enforcement action.
The drafting of a SEP will vary depending on whether the SEP is being performed as
part of an administrative or judicial enforcement action. SEPs with long implementation
.schedules (e.g., 18 months or longer), SEPs which require EPA review and comment on
interim milestone activities, and other complex SEPs may not be appropriate in,those
administrative enforcement actions where'EPA lacks injunctive relief authority or is subject
to a penalty ceiling. Specific guidance on the proper, drafting of SEPs will be provided in a
separate guidance document.
H. FAILURE OF A SEP AND STIPULATED PENALTIES
If a SEP is not completed satisfactorily, the defendant/respondent should be required,
pursuant to the terms of the settlement document, to pay stipulated penalties for its failure.
Stipulated penalty liability should be established for each of the scenarios set forth below as
appropriate to.the individual case.
1.. Except as provided in paragraph 2 immediately below, if the SEP is not'
completed satisfactorily, a substantial stipulated penalty should be required.
Generally, a substantial stipulated penalty is between 50 and 100 percent of the
amount by which the settlement penalty was mitigated on account of the SEP.
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Revised SEP Policy *** May 19$ * * * Page 13
~>
If the SEP is not completed satisfactorily, but the defendant/respondent:
a) made good faith and timely efforts -to complete the project; and b) certifies,
with supporting documentation, that at least 90 percent of the amount of
money which was required to be spem wasexpended on the SEP; no stipulated
penalty is necessary, -',,"' . i '' -
-3 If the .SEP is satisfactorily completed, but the defendant/respondent spent less
than 90 percent of the amount of money required to be spent for the project, a small
stipulated penalty should be required. Generally, a small stipulated penalty is
. between 10 and 25 percent of the amount by which the settlement penalty was
mitigated on account of the SEP.
4. If the SEP is satisfactorily completed, and the defendant/respondent spent at
least 90 percent of the amount of money required to be .spent for the project, no
, ' stipulated penalty is necessary. ' .'.-.
The determinations of whether the SEP has been satisfactorily completed (i.e., pursuant to,
the terms of the agreement) and whether the defendant/respondent has made a good faith,
timely effort to implement the SEP is in the sole discretion of EPA,
I. EPA PROCEDURES
1. Approvals
The authority of a government official to approve a SEP is included in the official's
authority to settle an enforcement case and thus, subject to the exceptions set forth here, no
special approvals" are required. The special approvals apply to both administrative and
judicial enforcement actions as follows:14 , .
a. Regions in which a SEP is proposed for implementation shall be given the
opportunity to review and comment on the proposed SEP.
b In all cases in which a SEP may , not fully comply with the provisions of this
J!afiey, the SEP must be approved by the EPA Assistant Administrator for-
and Compliance Assurance.
c :lif afc cases in which a SEP would involve activities outside the United States,
the SEP must be approved in advance by the Assistant Administrator and, for
judicial cases only, the Assistant Attorney General for the Environment and
Natural Resources Division of the Department of Justice.
14 In judicial cases, the Department of Justice must approve the SEP,
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Revised SEP Policy
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Mav 1995
* * *
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d In all cases in which a SEP includes ah environmental compliance promotion
project, 'the SEP must be approved by the Office of Regulatory Enforcement in
OECA. With time, this approval requirement may be delegated to Regional
officials.
2. Documentation and Confidentiality
In each case in which a SEP is included as part of a settlement, an explanation of the
SEP with supporting materials (including the PROJECT model printout, where applicable)
must be included'as. part of the case file. The explanation of the SEP should demonstrate
that the five criteria set forth in Section A.3 above are met by the project and include a
description of the expected benefits associated with the SEP. The explanation must include a
description by the enforcement attorney of how nexus and the other legal guidelines are
satisfied. , ... .',,
Documentation and explanations of a particular SEP may constitute'confidential
settlement information that is exempt from disclosure under the Freedom of Information Act,
is outside the scope of discovery, and is protected by various privileges, including the
attorney-client privilege and the attorney work-product privilege. White: individual Agency
evaluations of proposed SEPs are confidential documents, this Policy is a public document
and may be released to anyone upon request.
This Policy is primarily for the use of U.S. EPA enforcement personnel in settling
cases EPA reserves the right to change this Policy at any time, without prior notice,
or to act at variance to this Policy. This Policy does not create any rights, duties, or
obligations, implied or otherwise, in any third parties. ,
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